India's appeal against Vodafone arbitration award in senior court

Indian governments appeal against a verdict of an international arbitration tribunal that overturned its demand for Rs 22100 crore in back taxes from Vodafone Group Plc has been transferred to a senior court in Singapore and hearings are scheduled in September sources saidAn international arbitration court had on September 25 2020 rejected tax authorities demand for Rs 22100 crore in back taxes and penalties relating to the British telecom giants 2007 acquisition of an Indian operator The government in December applied in Singapore to set aside the award primarily on jurisdictional grounds The proceedings have been transferred to a senior court with a hearing date set for September two sources with knowledge of the matter saidThe appeal was filed in Singapore court as the Southeast Asian nation was the seat of arbitration The government has similarly challenged the order of a threemember tribunal at the Permanent Court of Arbitration in The Hague that asked India to return USD 12 billion plus interest and cost to British oil and gas company Cairn Energy plcThe government had used a 2012 law that gave tax authorities the power to reopen past cases to seek taxes from Vodafone and Cairn over alleged capital gains made several years ago Both Vodafone and Cairn had challenged the tax demands under bilateral investment protection treaties and initiated the arbitration India lost both arbitrationsSources said the government believes that taxation is not covered under investment protection treaties with various countries and the law on taxation is a sovereign right of the country While the treaties are primarily aimed at protection of investments the tax is levied on returns earned by entities The 2012 law commonly referred as retrospective tax law was enacted after the Supreme Court in January that year rejected proceedings brought by tax authorities against Vodafone International Holdings BV for its failure to deduct withholding tax from USD 111 billion paid to Hutchison Telecommunications in 2007 for buying out a its 67 per cent stake in a whollyowned Cayman Island incorporated subsidiary that indirectly held interests in Vodafone India LtdAlso Read AGR dues payable by telcos cant be subject matter of any future litigation Supreme CourtThe Finance Act 2012 which amended various provisions of the Income Tax Act 1961 with retrospective effect contained provisions intended to tax any gain on transfer of shares in a nonIndian company which derives substantial value from underlying Indian assets such as Vodaones transaction with Hutchison in 2007 It sought to subject a purchaser such as Vodafone to a retrospective obligation to withhold tax Using that law tax authorities in January 2013 slapped Vodafone with a tax demand of Rs 14200 crore including principal tax of Rs 7990 crore and interest but no penalties In February 2016 it updated the tax demand to Rs 22100 crore plus interestVodafone challenged this tax demand by bringing an arbitration proceeding under the NetherlandsIndia Bilateral Investment Treaty The arbitration tribunal unanimously ruled in Vodafones favour As per the award the government has to reimburse Vodafone 60 per cent of its legal costs and half of the 6000euros cost borne by Vodafone for appointing an arbitrator on the panel Sources said the Government of Indias liability came to Rs 85 crore in legal costIn the separate case of Cairn India has been asked to pay with interest the value of shares it sold the dividend it seized and tax refunds it withheld to recover part of tax demand from the British firm Cairn Energy which gave the country its biggest oil discovery was in March 2015 slapped with a demand for Rs 10247 crore tax on alleged capital gains it made when it in 2006 reorganised its India business before listing of the local unitVodafone International Holding a Netherland company had in February 2007 bought 100 per cent shares of Cayman Islandbased company CGP Investments for USD 111 billion to indirectly get 67 per cent control of Hutchison Essar Ltd an Indian company The tax department felt the deal was designed to avoid capital gain tax in India and imposed a tax demand which was rejected by the Supreme Court in 2012 To stop abuse and plug the loophole of such indirect transfer of Indian assets the government in 2012 amended the law to make such transfers taxable in IndiaThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever